Addition towards suppression of gross profit - stock valuation - Held that:- In the instant case, the assessee filed monthly VAT returns based on the same books of accounts and the same was accepted without making any additions. Neither the bank authorities nor the A.O. made any effort to verify the actual stock to prove that there is existence of unaccounted stock under these circumstances and consistent with the view taken by the ITAT and various High Courts, we hold that the A.O. has not made .....

his issue, it may not be proper to substitute the case of the A.O. by an Appellate Authority, without any cogent reasons. Since the A.O. followed an acceptable basis such as averaging the 3 years profit rate, we are of the view that the order of the Ld. CIT(A) on this aspect deserves to be modified and we uphold the order of the A.O. of estimating the average rate of 36.85%. - Decided partly in favour of revenue. - I.T.A. No. 28/Vizag/2015 - Dated:- 8-12-2017 - Shri D. Manmohan, Vice President A .....

at the bank authorities had actually verified the stock ignoring the certification given by the Bank Authorities that the stock is subjected to random verification at regular intervals. 3. The Ld. CIT(A) ignored the fact that there is no stock register and this fact was certified by the Auditor in his Audit Report and simply shifted the onus to prove the unaccounted stock to the AO. 4. The Ld. CIT(A) ought to have considered the ratio of the decisions of the Hon'ble Supreme Court in the case .....

in the statement of facts. 7. The Ld. CIT(A) ought to have sustained the addition of ₹ 2,74,153 and ₹ 8,69,416 towards suppression in gross profit since AO has followed well established procedure in adopting the average of gross profit. 2. At the outset, it may be noticed that under Rule 8 of the Appellate Tribunal Rules, 1962 the parties to the dispute have to file the grounds by making them concise. In other words, they should not be argumentative. Quoting of case law and referring .....

s CIT(A), the assessee is given one opportunity to project the facts from its perspective. Before the Tribunal, order of the CIT(A) is challenged and if the findings are perverse or contrary to law, the assessing officer is entitled to send a brief memo to the departmental representative to enable him to put forth his plea, but he is not entitled to file statement of facts. On the top of it, in ground No.6, the appellant submits that the Ld. CIT(A) ought to have confirmed the addition of unaccou .....

s in brief are that the assessee, as a proprietary concern, was engaged in the business of manufacture of hosiery and readymade garments and sale thereof. For the year under consideration, the return was originally processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter called as 'the Act') but later on taken up for scrutiny under CASS. During the course of examination, the A.O. noticed that the assessee availed open cash credit facility from Andhra bank to meet the working capital .....

, whichever is lower, which means that both the stock reported by the bank and recorded in the books of accounts are based on the cost price only. It was thus concluded that the difference in value of stocks was only because of the difference in quantity of stock and not because of inflated value. 4. In this regard, he observed that ordinarily the books of accounts are presumed to be true and correct unless proved otherwise. He further observed that the onus is upon the assessee to prove the fac .....

eges that the bank statement is incorrect, then he has to establish the same by bringing on record some direct or circumstantial evidence and he cannot get away just by making a statement that it was to avail higher over draft facility. Reliance was also placed upon the decision of Hon ble Madras High Court in the case of Coimbatore Spinning and Weaving Company (93 ITR 375), wherein the Court observed that sub-standard morality on the part of the assessee should not be encouraged since it is opp .....

of accounts has to be treated as unexplained investment and accordingly added the same. 4. The A.O. made an addition of ₹ 2,74,153/- towards suppression of gross profit. As per the returns of income filed, the gross profit rate for the 3 consecutive assessment years are as under: Asst. Year Gross profit 2010-11 36.50% 2011-12 36.13% 2012-13 37.92% Average GP 36.85% By taking the average percentage of gross profit, the suppression of gross profit was worked out by the A.O. 5. Aggrieved by t .....

f stock submitted to bank will never be accurate both in terms of quantity and value and would not tally with the amount reflected in the books of accounts. It was also stated that a comparative statement both for purchases and sales - as per the stock statement submitted to Andhra Bank and as per the audited books, says that purchases for April, 2010 and September, 2010 was wrongly taken with significant figures and thus the total purchases were excessively reported to the bank, whereas for Oct .....

ct the assessee has declared higher rate of profit in the succeeding year. Thus, no addition is maintainable by averaging the gross profit declared in different years. 8. It may not be out of place to mention that the A.O. has estimated the gross profit on unaccounted sales, referable to the difference in stock (closing stock as disclosed to the Andhra bank and the stock mentioned in the books of accounts) and accordingly added a sum of ₹ 8,69,416/-. In this regard, the assessee contended .....

istence of unaccounted stock. Ld. CIT(A) also observed that any excess unaccounted stock could have been found by physical verification. There is no evidence to show that the bank authorities had actually verified the stock and tallied them with the stock declared to them and even the A.O. has not done that exercise. The books of accounts maintained by the assessee were in agreement with VAT returns filed before State Commercial Tax authorities and there was nothing on record to suggest that any .....

tive. The Assessing Officer made addition only on the basis of statement obtained from bank. In the absence of stock register, to establish the unaccounted stock, the Assessing Officer should have made some exercise to bring on record some corroborative evidence such as abnormal increase in production cost, electricity charges, transportation etc., which are attributable to the unaccounted stock to prove the existence of such stock and production of finished goods by processing the same. However .....

the estimate of profit, the Ld. CIT(A) observed that profit varies from year to year depending upon the facts and circumstances prevailing in that particular year, which is very common in any line of business. However, taking into consideration, the fact that there was certain deficiencies in the maintenance of books of accounts, the Ld. CIT(A) directed the A.O. to estimate the profit at 36.50%, in line with the profit admitted in the immediately preceding year. 11. Aggrieved by the order of th .....

herein to the bank authorities, is not correct as otherwise addition is maintainable and profit thereon can be estimated on the ground of deemed sale. Similarly, with regard to the estimate of profit, by averaging 3 years gross profit rate, the Ld. D.R. submits that the procedure followed by the A.O. is a well established procedure and the Ld. CIT (A) should not have substituted the rate adopted without any basis. 12. On the other hand, the Ld. Counsel for the assessee filed written submissions, .....